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The decade-long effort to overhaul North Carolina's tax system finally has some legs this year, but will they weaken if a budget stalemate drags on?
Taxes are the central debate that delayed passage of the state's $18 billion-plus budget before the new fiscal year began. House and Senate Democrats are at odds over how many additional services should be covered by the sales tax, and whether rates should go up.
“We're back to philosophical differences,” said Sen. David Hoyle, D-Gaston, one of the chief tax negotiators, after a week of closed-door bargaining found little common ground.
It's unclear whether those legs have enough muscle to withstand complaints from interest groups whose customers would be singled out to pay more taxes. Republicans won't go along with any plan because they say raising taxes is the wrong message from Democrats, who seek $1 billion more this year to help narrow a wide budget gap.
The tax debate follows years of meetings by state panels examining how to tap into an economy that has moved increasingly away from traditional manufacturing to service industries.
Senate finance leaders unveiled a proposal in April that remains largely intact on the bargaining table.
It would increase the number of services subject to the sales tax from 30 to about 80 – adding building repairs, property maintenance, all sorts of spectator events and even storage units. North Carolina would rise from the bottom third of the states in the number of covered services to the top 10, according to the N.C. Budget and Tax Center.
The sales tax rate most consumers pay would be reduced from 6.75 percent to 6.25 percent, while individual and corporate income tax rates also would fall as loopholes and deductions are closed and tax returns simplified.
